DEALBOOK; Banks Seek to Overturn Judge’s Ruling in a Mortgage Case

By JESSICA SILVER-GREENBERG

Published: March 28, 2013

Bank of America, Citigroup, JPMorgan Chase and UBS — filed a motion in Federal District Court in Manhattan late Tuesday night to throw out a series of decisions by Judge Denise L. Cote, according to a copy of the court filing. In doing so, the financial institutions are aiming to broaden the amount of evidence they can gather in the hopes of quashing the lawsuit.">

The nation’s largest banks, facing a torrent of lawsuits over shoddy mortgage securities, are pushing to overturn a series of tough rulings in an important case.

In a rare move, 15 banks — including Bank of America, Citigroup, JPMorgan Chase and UBS — filed a motion in Federal District Court in Manhattan late Tuesday night to throw out a series of decisions by Judge Denise L. Cote, according to a copy of the court filing. In doing so, the financial institutions are aiming to broaden the amount of evidence they can gather in the hopes of quashing the lawsuit.

The rulings, the banks argue, are so “gravely prejudicial” that the firms had no choice, a step that was not “taken lightly.”

The case could have costly implications.

In 2011, the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, accused the banks of duping the housing giants into buying $200 billion of mortgage securities that ultimately imploded during the financial crisis. On Wall Street, the lawsuit is considered a critical litmus test for how successful the banks will be in stanching their losses from the mortgage litigation.

The banks have been aggressively trying to thwart the lawsuit. In November, Judge Cote denied requests by the banks to toss out the lawsuit altogether.

Now, the banks are trying to reverse her rulings that limit the amount of so-called discovery they can collect, including depositions and internal documents. The decisions, according to the court filing, unfairly constricts the banks, undercuts their ability to fight the lawsuit and is “grossly inequitable.”

In an order in May 2012, Judge Cote ruled that the banks could take a total of only 20 depositions, or interviews, from current and former employees at Fannie Mae, Freddie Mac and the housing agency. The court filing claims that the limited scope of the interviews leaves the banks without a full understanding of Fannie’s and Freddie’s operations.

By comparison, under the judge’s ruling, the Federal Housing Finance Agency can gather 400 depositions. The ruling also prevents the banks from gathering additional information from a major unit within the mortgage finance firms that evaluated home loans before they were packaged and sliced into the complex investments.

“This structure creates an extraordinarily uneven playing field that deprives petitioners of the right to confront the claims against them, while giving F.H.F.A. a distinct advantage,” the banks’ filing says.

Judge Cote reaffirmed the rules governing discovery in a separate order filed last month. In that order, the judge reiterated that “defendants as a group may take 20 depositions of F.H.F.A.” Even the housing agency proposed a more generous deposition cap of 40 total, the banks say.

The banks assert in the court filing that the limitations will hobble their defenses while unfairly letting the housing agency proceed with its case. The decision, the filing says, will ultimately force the banks to settle.

Judge Cote did not respond to repeated requests for comment.

The move is the latest effort by big banks to put the mortgage mess — and the related legal headaches — behind them.

In recent years, the banks have been overwhelmed with lawsuits filed by federal and state authorities, as well as private investors. The lawsuits center on a dismal chapter in banks’ histories when Wall Street sold billions of dollars of subprime mortgages that soured, causing the banks and investors to incur vast losses.

In the latest salvo, Citigroup agreed this month to pay $730 million over accusations that the bank deceived investors in securities backed by mortgage loans. Citigroup did not admit wrongdoing.

The lawsuits show no signs of abating. In October, federal prosecutors in Manhattan accused Bank of America of fraud, claiming the firm’s subprime lender Countrywide Financial churned out loans at such a fast clip that quality controls were almost entirely flouted.

Analysts say the mortgage-related litigation is among the greatest threats to the industry’s profit. In the fourth quarter, Citigroup’s profit was eroded by a $1.3 billion legal bill.

This is a more complete version of the story than the one that appeared in print.

Bank of America, Citigroup, JPMorgan Chase and UBS — filed a motion in Federal District Court in Manhattan late Tuesday night to throw out a series of decisions by Judge Denise L. Cote, according to a copy of the court filing. In doing so, the financial institutions are aiming to broaden the amount of evidence they can gather in the hopes of quashing the lawsuit.">